Overdrawn directors accounts will now cost 32.5% 2

with computer

Directors often borrow from their companies and this incurs a temporary tax charge.

The rate of tax charged on loans to participators and other arrangements (currently 25%) is being specifically linked to the dividend upper rate, which will be 32.5% from 6 April 2016.

Section 455 CTA 2010 liabilities must be included in a company’s CT600 tax return. The S455 tax forms part of the calculation of tax payable by the company under Paragraph 8 Schedule 18 FA 1998.

A claim to relief under Section 458 is a claim for relief against the original tax charge for the AP in which the loan was made. The time limit for the claim is four years from the end of the financial year in which the loan is repaid, released or written off. COM53120

You must use form L2P to enable a close company which has paid tax on a loan to a participator to reclaim that tax once the loan has been repaid, released or written off.

Click here to use form LP2

steve@bicknells.net

What if you write off an intercompany or directors loan? 1

with computer

Connected party loans are a problem area especially if the loan is impaired (ie the borrower may not be able to repay the debt)

Individual Loans written-off

If an individual makes a loan to a company and this is subsequently written-off, the company will have a non-trading loan relationship credit equal to the amount written off.

If the loan was made to an unquoted trading company, the individual will crystalise a capital loss equal to the amount of the loan written off. This will be available to set off against capital gains arising in the year of write-off or in subsequent years.ACCA

The situation, however, becomes more complicated where the parties are connected. The general rule is that where the debtor and creditor in a loan relationship are connected in any part of an accounting period and the whole or part of a loan is written off, then this is effectively a ‘tax nothing’, ie the creditor company cannot claim relief for the amount of the loan written off and the debtor company does not incur a taxable loan relationship credit.
There is, however, an exception to the above when the creditor company is in insolvent liquidation; a creditor company may claim an impairment loss in these circumstances.

 

Loans swapped for Shares

Often Loans are swapped for equity and then subsequently a claim for negligible value is made.

A negligible value claim enables you to set a capital loss against your income (or against other capital gains if you have them) for earlier years and claim a tax refund.

Many negligible value claims are made by shareholder directors whose company has failed. Their claim is to offset the loss on the shares in their company against their directors’ wages for earlier tax years.

When a taxpayer owns shares which become of negligible value the taxpayer may make a claim under s24 TCGA 1992, resulting in a deemed disposal and reacquisition, which crystallises a capital loss.

Intercompany Loans

Accounting standards require companies to assess their assets at the end of each period to ascertain whether there is objective evidence that particular assets are impaired.  So if a loan can’t be repaid it would be impaired and may require a provision for bad or doubtful debts at the year-end which may well lead to the eventual release of the loans in question.

The problem is that for connected businesses this can create a double whammy on tax! tax relief is denied in respect of the debit to the creditor company’s profit and loss account.  The credit recognised in the debtor company’s accounts can be taxable.

Where the creditor and debtor are connected companies, the connected party rules will apply to the release. This means that the release debit in the creditor’s accounts will not be allowable, because of CTA09/S354. Similarly, the credit in the debtor company’s accounts will not be taxable, since CTA09/S358 applies, unless the release is a ‘deemed release’ as defined in CTA09/S358(3) (CFM35440) or a ‘release of relevant rights’ under CTA09/S358(4) (CFM35510).

Since the release is, for both parties, dealt with under loan relationships, the priority rule in CTA09/S464 means that the creditor’s loss cannot be claimed, nor the debtor’s profit taxed, under the normal provisions for trading income. Nor can the credit in the debtor’s accounts be taxed under CTA09/S94 (debts incurred and later released).

Trade debts or loans between companies within a group may not uncommonly be released when either the debtor or the creditor company (or both) is dormant, as part of a ‘tidying-up’ exercise to enable dormant companies to be struck off. If this is all that happens, HMRC would take the view that the recording of an accounts profit – which is not taxed – in a dormant debtor company does not result in that company starting to carry on a business, and therefore does not start an accounting period under CTA09/S9. HMRC CFM41070

Two companies are connected for an accounting period if one controls the other or both are under the control of the same person (s 466) and companies are connected for the whole of their respective accounting periods if the control test is met at any time during those periods.

One possible solution could be a Deed of Release or Waiver executed in the accounting period in which the loan is released, but this would need to be properly drafted. The credit to the debtor company’s profit and loss account will then be able to be treated as non-taxable and as such avoid the double tax treatment.

steve@bicknells.net

Contact Us

Will automatic planning consent lead to more homes? Reply

Group of construction workers. House renovation.

Housing and home ownership are a top priority in the UK and last week new proposals were announced in the Productivity Plan (see page 11 section 9)

The UK has been incapable of building enough homes to keep up with growing demand. This harms productivity and restricts labour market flexibility, and it frustrates the ambitions of thousands of people who would like to own their own home. The government will:
  • introduce a new zonal system which will effectively give automatic permission on suitable brownfield sites
  • take tougher action to ensure that local authorities are using their powers to get local plans in place and make homes available for local people, intervening to arrange for local plans to be written where necessary
  • bring forward proposals for stronger, fairer compulsory purchase powers, and devolution of major new planning powers to the Mayors of London and Manchester
  • extend the Right to Buy to housing association tenants, and deliver 200,000 Starter Homes for first time buyers
  • restrict tax relief to ensure all individual landlords get the same level of tax relief for their finance costs

Automatic planning consent on Brownfield sites, when approved, follows a number of other important incentives such as the Starter Homes initiative 20% discount.

The 20% discount is achieved by waiving local authority fees for homebuilders of at least £45,000 per dwelling on brownfield sites.

At the heart of the Starter Homes initiative is a change to the planning system. This will allow house builders to develop under-used or unviable brownfield land and free them from planning costs and levies. In return, they will be able to offer homes at a minimum 20% discount exclusively to first time buyers, under the age of forty.  Under the proposals, developers offering Starter Homes would be exempt from those Section 106 charges and Community Infrastructure Levy charges. The homes could then not be re-sold at market value for a fixed period – making sure that the savings are passed onto homebuyers.Gov.uk

To qualify first time buyers must be under the age of 40 and living in England.

Also the Help to Buy ISA for first time buyers where they could qualify for a £3,000 bonus

Help to Buy ISA

There is also the Help to Scheme where home buyers may only need a 5% deposit

With a Help to Buy: equity loan the Government lends you up to 20% of the cost of your new-build home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest.

You won’t be charged loan fees on the 20% loan for the first five years of owning your home.

– See more at: http://www.helptobuy.org.uk/equity-loan/equity-loans#sthash.Vna08ZpX.dpuf

steve@bicknells.net

How you can update HMRC on your company car details 1

mann im auto

Based on HMRC Statistics approximately 1 million employees have a company car, its the 2nd most popular benefit in kind. The most popular benefit in kind is Private Medical Insurance (2.2m employees).

Often employees will change cars or start/stop having fuel for cars during a tax year and the tax on company cars can be significant, you can use this HMRC calculator to assess the the tax.

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

HMRC have just introduced a new Check and Update Service for Employees so that you can make sure HMRC have the correct information

https://www.gov.uk/update-company-car-details

You may find that it would be better for your employer to give you a loan, beneficial loans up to £10,000 aren’t a taxable benefit.

https://www.gov.uk/expenses-and-benefits-loans-provided-to-employees/whats-exempt

There companies like Maxxia that promote salary sacrifice schemes for cars

http://maxxia.co.uk/asset-finance/car-salary-sacrifice/

steve@bicknells.net

Widening of Qualifying Loan Interest Tax Relief Rules 1

Entrepreneur startup business model

Often when you start a business you will need to borrow money personally to lend to your new company or buy shares.

You might borrow by increasing your mortgage.

You may be entitled to claim tax relief for interest paid on a loan or alternative finance arrangement used to buy:

  • shares in, or to fund, a ‘close’ company (contact your HM Revenue & Customs (HMRC) office if you are not sure if the company is ‘close’)
  • an interest in, or to fund, a partnership
  • plant or machinery for your work (but make sure you do not claim this interest twice, you will do if you have already deducted it as a business expense)

If you receive a low-interest or interest free loan from your employer for one of the above purposes you may be able to claim relief for any benefit taxable on you.

This is called ‘Qualifying loan interest relief’, HMRC have a helpsheet which gives further details HS340

In the 2014 Budget Qualifying loan interest relief was changed to include EEA state companies

steve@bicknells.net

 

5 Key Tests the employer must pass to borrow from a Pension Scheme 2

Pension concept
There are five key tests that a loan from a Pension Scheme must satisfy to qualify as an authorised employer loan. If a loan fails to meet one or more of these tests an unauthorised payment charge will apply.

The five key tests are

  • security
  • interest rates
  • term of loan
  • maximum amount of loan and
  • repayment terms.

Security [S179, Sch 30]

If a registered pension scheme makes a loan to an employer the amount of the loan must be secured throughout the full term as a first charge on any asset either owned by the sponsoring employer, or some other person, which is of at least equal value to the face value of the loan including interest.

If the asset used as security is taxable property then there may be additional tax charges under the taxable property provisions if the registered pension scheme is an investment regulated pension scheme.

Taxable property consists of residential property and most tangible moveable assets. Residential property can be in the UK or elsewhere and is a building or structure, including associated land, that is used or suitable for use as a dwelling. Tangible moveable property are things that you can touch and move. It includes assets such as art, antiques, jewellery, fine wine, classic cars and yachts.

Interest Rates [S179, Sch 30]

All loans made by registered pension schemes to employers must charge interest at least equivalent to the rate specified in The Registered Pension Schemes (Prescribed Interest Rates for Authorised Employer Loans) Regulations 2005 (SI 2005/3449). This is to ensure that a commercial rate of interest is applied to the loan.

The minimum interest rate a scheme may charge is calculated by reference to 1% above the average of the base lending rates of the following 6 leading high street banks:

  • The Bank of Scotland
  • Barclays Bank plc
  • HSBC plc
  • Lloyds TSB plc
  • National Westminster plc and
  • The Royal Bank of Scotland plc.

The average rate calculated should be rounded up as necessary to the nearest multiple of ¼%.

Term of Loan [S179, Sch 30]

The repayment period of the loan must not be longer than 5 years from the date the loan was advanced. The total amount owing (including interest) must be repaid by the loan repayment date.

Maximum Amount of Loan [S179, Sch 30]

Section 179 (1)(a) of Finance Act 2004 restricts the amount of a loan which can be made to a sponsoring employer to 50% of the aggregate of the amount of the cash sums held and the net market value of the assets of the registered pension scheme valued immediately before the loan is made. These restrictions are necessary because although such loans provide a useful source of business funding, there may be liquidity problems for the scheme if there is a sudden requirement to provide scheme benefits. It may also not be prudent to lend scheme funds to one company.

Repayment Terms [S179, Sch 30]

All loans to employers must be repaid in equal instalments of capital and interest for each complete year of the loan, beginning on the date that the loan is made and ending on the last day of the following 12 month period – known as a loan year.

Often Land and Commercial Property are used as the security for Pension Scheme loans but the problem is having first charge over the asset!

steve@bicknells.net

Are you ready for massive construction growth? Reply

at a construction site

According to the Construction Products Association summer forecasts, output will rise by more than 22% over the next five years. Private housing starts are expected to grow by 18% in 2014 and 10% in 2015. Commercial offices output is also projected to grow 10% this year and 8% in 2015.

The CITB Construction Skills Network predicts that 182,000 new jobs will be created in the UK construction industry between 2014 and 2019 as employment rises for the first time since the start of the recession in 2008.

A Close Brothers survey in May showed that 65% of construction firms admit that access to cash is a major challenge for their business.

So can we keep pace? where will the construction workers come from? and will we be able to fund the projects?

steve@bicknells.net

Would you like to borrow against a single invoice? Reply

Close-up picture of an invoice

In August 2013, the UK Government became a Buyer of invoices on the MarketInvoice Platform, investing directly in UK SMEs looking to access working capital and grow their businesses.

Why is the Government investing funds through MarketInvoice?

The UK Government, via the Department of Business Innovation and Skills (‘BIS’) and as part of the ‘Business Finance Partnership’, has committed to using alternative finance providers to channel much needed growth funding to UK SMEs.  The scheme is investing £1.2 billion into increasing lending to small and medium sized businesses from sources other than banks.

How does it work?

Any company can use MarketInvoice provided its sells goods or services to other large businesses.

Its a ‘pay as you go’ service and you can see the estimated costs by using their calculator

Companies are vetted and the invoice must be to a large corporate not to other SME’s.

Its confidential so your customer will not know you have used MarketInvoice, if the customer doesn’t pay you will have to refund the investor.

So far £163m of invoices have been funded by MarketInvoice.

Of course it would be better if customers always paid quickly!

steve@bicknells.net

5 reasons to move business premises into your pension? 2

A donut store, bakery, fish and chips store and a pet shop

Often business premises are owned by the business, this could be for many reasons for example the business has multiple owners or it helps to increase the business net worth.

But in many cases it would be better for the premises to be owned by the business owners pension fund because:

  1. The object of the business is not to own its own property, the objective should be for the business to make profits from trading
  2. The business could use cash tied up in the premises to invest in trading activities
  3. Pensions are a very tax efficient method of ownership – no capital gains, no tax on rental profits
  4. Company Pension Contributions are Tax Deductible and Individual contributions get income tax refunds
  5. You may be able to use 3 year Carry Forward to get funds into your pension scheme

In summary to move your business premises from your business to a SIPP or SSAS pension you would do the following:

  • Find a lender prepared to lend a third of the property value to your pension scheme  (which will be half the value of the fund ie if the property was valued at £300k, your pension could borrow £100k which is 50% of the £200k which will need to be funded by your pension scheme)
  • Have the premises independently valued and rent assessed and appoint solicitors
  • Create a SSAS or SIPP pension (you can include other people in your SSAS or SIPP investments)
  • Transfer into your SSAS or SIPP any funds you have in other pension schemes
  • As you are the business owner and its your pension scheme your business could make a payment into your pension scheme, the maximum for the last 3 years would be £140k (£50k + £50k + £40k) see details of NRE
  • The pension contribution from your company could be an In Specie payment (meaning its in kind not cash)
  • You could make a personal payment to your pension and if you are a higher rate tax payer your will get a tax refund via your self assessment return
  • Then your pension scheme buys the premises from your business and rents it back to the business

steve@bicknells.net